{"url":"https://www.clear.sale/blog/industry-focus-fraud-risk-profile-for-adult-entertainment-retailers","title":"[Industry Focus] Fraud Risk Profile for Adult Entertainment Retailers","tldr":"Adult entertainment retailers face high chargeback ratios and fraud risk online. See what drives disputes over $75 each and how to protect merchant accounts.","markdown":"TL;DR\n\nAdult entertainment retailers face elevated fraud exposure as they move online, driven by card-not-present transactions, friendly fraud, and high chargeback ratios. Chargebacks can exceed $75 per dispute and often stem from forgotten free-trial subscriptions, customers concealing private activity, or dissatisfaction. To protect their merchant accounts and profits, these high-risk retailers need a secure processing solution that distinguishes legitimate transactions from fraudulent ones.\n\nThe adult entertainment industry has long had a reputation for being a hotbed of fraud due to the suspicious clientele they often attract. As adult entertainment retailers expand into the digital marketplace, they find themselves increasingly exposed to these fraudsters. Credit card processing is a must for these retailers, but the costs associated with [credit card fraud](//blog.clear.sale/startling-identity-theft-statistics-that-should-worry-online-merchants) and high-risk merchant accounts can be catastrophic to their bottom line.\n\nSo what can adult entertainment retailers do to minimize their fraud exposure and maximize their protection efforts?\n\n## Why Fraud Is a Problem for Adult Entertainment Retailers\n\nFraud shows itself in the adult entertainment industry in three significant ways.\n\n### Increased Risk of Chargebacks\n\nChargebacks are costly and time-consuming for every business; the adult entertainment industry is no exception. In fact, the industry generally has a [higher chargeback ratio](https://avn.com/business/articles/video/mastercard-lowers-acceptable-chargeback-levels-34141.html) than mainstream companies relative to the amount of business they do. Adult entertainment customers frequently call their credit card provider and deny charges as fraudulent, unpurchased or unfulfilled.\n\nWith the potential to [exceed $75 per dispute](https://www.dalpay.com/en/support/chargebacks.html), chargebacks can swiftly eat away a company’s profits. Some credit card processors have lower thresholds for stripping retailers of their merchant accounts based on chargeback ratios, putting retailers at the mercy of high-risk merchant accounts.\n\n### Concern About Fronting Illegal Activity\n\nThe adult entertainment industry has a longstanding reputation for being the source of — and attracting — fraudulent behavior, so traditional credit card processors are often concerned such businesses are a front for illegal activity.\n\nAnd rightfully so. Fraudsters frequently establish fake websites and collect payments for products and services that aren’t even available — even convincing online users to [send money](http://www.11alive.com/news/soldier-speaks-after-his-picture-was-used-to-scam-dallas-online-daters/438641212) or release sensitive data.\n\n### Card-Not-Present Transactions\n\nAdult entertainment retailers are frequently the victim of card-not-present (CNP) transactions. Criminal activity is rampant in the industry, with fraudsters skimming credit card information, hacking bank accounts and stealing identities. Many merchants, like online dating sites, include site disclaimers warning clients not to send money or provide credit card information to anyone they’ve met on the site.\n\nReputable adult entertainment processing solutions can help drive repeat product purchasing, increase conversions and protect against online fraud. But the number of legitimate processors is shrinking, forcing merchants to accept substandard processing solutions that leave merchants increasingly vulnerable to fraud.\n\n## What Fraud Can Look Like for Adult Entertainment Retailers\n\nFrom CNP fraud to chargebacks, adult entertainment fraud can take several forms.\n\n- Recurring subscriptions. Much of the industry’s fraud comes from friendly fraud for recurring subscriptions. Users don’t remember when their free trial ends and forget to cancel before the subscription period begins. When the first charge hits, customers initiate the chargeback process instead of canceling.\n\n- Concealing activity. Some online daters want complete privacy, and they may dispute a dating site’s credit charge to conceal their activities. Or perhaps a husband doesn’t want to admit to his wife about an adult entertainment credit card charge and feigns innocence, so the wife initiates a chargeback.\n\n- Displeased with service. Some customers will dispute a charge if they are in any way unhappy with the product or service they received.\n\n- Offshore credit card processors. Some adult entertainment merchants use offshore credit card processors to avoid the fees associated with high-risk processors. While this seems like a reasonable alternative, it’s not without risk for the merchant. For example, offshore merchants aren’t guaranteed FDIC protection.\n\n- Fraudulent users. Criminals may use stolen credit card information to create multiple premium accounts on dating or other adult entertainment websites. They then use these profiles to scam users into sending money or disclosing sensitive data.\n\n## How Adult Entertainment Retailers Can Protect Themselves Against CNP Fraud\n\nChargeback fees can be devastating for any business, and the adult entertainment industry is no exception. As a [high-risk merchant](//blog.clear.sale/what-it-means-to-have-a-high-risk-merchant-account), adult entertainment retailers need a safe and secure credit card processing solution that won’t break the bank.\n\nEven more important, retailers must be able to distinguish between legitimate and fraudulent transactions to minimize chargeback fees, safeguard their merchant accounts and protect against friendly fraud.\n\n**At ClearSale, we’re committed to helping merchants in every industry maximize their sales and protect their profits.**[Contact us](https://www.clear.sale/contact)**today to learn more about****integrating a fraud protection solution that will protect you against the rising threat of CNP fraud.**\n\n****\n\n## Frequently Asked Questions\n\n### Why is fraud a bigger problem for adult entertainment retailers?\n\nThe industry has a long reputation as a hotbed of fraud due to the clientele it attracts, and moving online increases exposure to fraudsters. Fraud shows up mainly through increased chargeback risk, concerns about fronting illegal activity, and card-not-present transactions.\n\n### How much do chargebacks cost these retailers?\n\nChargebacks can exceed $75 per dispute and swiftly eat away at profits. The adult entertainment industry generally has a higher chargeback ratio than mainstream companies relative to its volume of business.\n\n### What is friendly fraud in this industry?\n\nMuch of the industry's fraud comes from friendly fraud on recurring subscriptions, when users forget to cancel before a free trial ends and then dispute the first charge instead of canceling. Some customers also dispute charges to conceal private activity or because they were displeased with the service.\n\n### Why are merchant accounts a concern for these retailers?\n\nSome credit card processors have lower thresholds for stripping retailers of their merchant accounts based on chargeback ratios. That puts adult entertainment retailers at the mercy of high-risk merchant accounts, and the number of legitimate processors is shrinking.\n\n### What are the risks of using offshore credit card processors?\n\nSome merchants use offshore processors to avoid high-risk processing fees, but this carries risk. For example, offshore merchants are not guaranteed FDIC protection.\n\n### How can adult entertainment retailers protect against CNP fraud?\n\nThese high-risk merchants need a safe, secure processing solution and the ability to distinguish legitimate transactions from fraudulent ones. Doing so helps minimize chargeback fees, safeguard merchant accounts, and protect against friendly fraud."}